The Interactions between COVID-19 Cases in the USA, the VIX Index and Major Stock Markets

Simon Grima,Ercan Özen,Letife Özdemir,Inna Romānova

doi:10.3390/ijfs9020026

Abstract

With this study, we aimed to determine (1) the effect of the daily new cases and deaths due to the COVID-19 pandemic in the United States on the CBOE volatility index (VIX index) and (2) the effect of the VIX index on the major stock markets during the early stage of the pandemic period. To do this, we collected and analysed the daily new cases and death numbers during the COVID-19 pandemic period in the United States and the country indexes of the USA (DJI), Germany (DAX), France (CAC40), England (FTSE100), Italy (MIB), China (SSEC) and Japan (Nikkei225) to determine the impact of the VIX index on the major stock markets. We then subjected this data to the Johansen co-integration test and the fully modified least-squares (FMOLS) method. The results indicated that there was co-integration between the VIX and the COVID-19 pandemic and that there was co-integration between the VIX index and major indexes, except for the CAC 40 and MIB. Moreover, the results showed that the new COVID-19 cases in the USA had a higher impact on the VIX than cases of deaths during the same period.

Highlights

In December 2019, the coronavirus disease 2019 (COVID-19) outbreak began in the city of Wuhan, Hubei region, China
To examine the relationship between the VIX index and daily new case and death numbers of the COVID-19 pandemic, we first needed to determine whether the time series was constant
The unit root properties of the time series used in the study were investigated using the unit root tests developed by Dickey and Fuller (1979) (augmented Dickey–Fuller (ADF)) and Phillips and Perron (1988) (PP)

Summary

Introduction

In December 2019, the coronavirus disease 2019 (COVID-19) outbreak began in the city of Wuhan, Hubei region, China. As of 20 March 2020, the virus had already affected more than 500,000 people in more than 60 countries, with around 16% deaths due to this virus. On 3 February 2020, the Shanghai stock market plunged 8% following the general distress over COVID-19 in China. This shocking disruption rapidly spread to international financial markets. The United States (U.S.) stock prices logged their lowest level in February and the S&P 500 plummeted 4.4% on 28 February 2020. Ignored by many countries, the COVID-19 effect was raising serious concerns due to its rapid propagation outside China (Albulescu 2020a, 2020b)

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Conclusion